ASIC concerned over ASX glitches

The Australian Securities and Investments Commission (ASIC) has red flagged the Australian Securities Exchange (ASX) over concerns that it implemented trading system upgrades despite there being risks after testing.

The Australian Securities and Investments Commission (ASIC) has red flagged the Australian Securities Exchange (ASX) over concerns that it implemented trading system upgrades despite there being risks after testing.

ASX Trade24 and ASX Trade incidents since they went live up to August 2011.(Credit: ASIC)

In its market assessment report of the ASX Group (PDF), ASIC said that although the ASX had historically maintained very high availability on its critical systems, the commission had become concerned with the number of incidents that had occurred during the reporting period and more recently up to August 2011.

In total, nine incidents were recorded during the July 2009 to August 2011 period, not including the outage that occurred last month, which saw trading on the ASX shut down for most of the day.

According to ASIC, the most severe of the nine issues were those on the 27 October 2010, 28 February 2011 and 4 March 2011. Each of those issues led to market outages and all of the nine issues were related to the ASX Trade24 and ASX Trade systems. ASIC's report stated that the majority of those issues occurred in the first six months following the live date of the system upgrades.

After becoming increasingly concerned with the regularity of the interruptions to market trading, ASIC requested ASX to provide incident reports to outline the causes and actions taken in response to the incidents.

ASIC's report also highlighted that although ASX implemented a test environment prior to the implementation of upgrades to the ASX Trade24 system and had worked closely with the vendor, NASDAQ OMX, it went to production while a range of issues still existed that required ongoing monitoring. These issues included low, medium and high severity issues as classified by ASX itself.

ASX said that it was "not unusual to go live with an upgrade to a trading platform with a number of issues remaining on the risk register", but ASIC noted that this would mean risks would not have been completely resolved.

ASIC also wanted to be kept more informed of ASX's technological changes. It said that while ASX does make ASIC aware of changes above and beyond what it is required to do under the Corporations Act, it could do more. ASIC said ASX should inform the commission and market participants as early as possible when there are technological changes, even if they do not result in operating rule amendments.

One example it cited was an announcement by ASX of a new $32 million datacentre to expand its co-location services. It said that the early notification of those changes would have assisted ASIC in planning and determining any implications that they may have in the market. More importantly, it stated it would have assisted the industry in its internal planning.

As part of the assessment process, ASX has agreed to a number of actions, including informing ASIC of changes.

ASX is examining how it would share details such as its implementation plans, project timelines and key milestones to keep ASIC and other market participants informed on technological changes.

It has also agreed to periodically provide information on the future releases of key technology systems 12 months in advance, as well as establish minimum notice periods for minor technological changes.